Low take-up of subsidised wage scheme

Few employers and employees have availed of a new‚ subsidised wage scheme, which became effective in Austria in January 2006. As a result, the scheme appears to have been unsuccessful, thus far, in its main goal of stimulating employment in low-wage sectors. Nonetheless, experts are divided over the reasons for the scheme’s failure to date.

On 1 January 2006, Section 34a of the Labour Market Service Act (Arbeitsmarktservicegesetz, AMSG), which was passed by parliament in the autumn of 2005, came into force. The new regulation enables both employers and employees to avail of subsidised wages in low-wage sectors, and aims to boost employment, particularly in light of Austria’s steadily increasing unemployment levels in recent years (AT0509202N). The reasoning behind the new legislation is that vacant posts, which cannot be filled because of extremely low pay levels, should be made more attractive to people who are long-term unemployed, by subsidising their wages using funds of the Labour Market Service (Arbeitsmarktservice, AMS). Such low-wage jobs are typically part time and often entail commercial, basic office and cleaning activities.

Provisions of scheme

In line with the AMSG amendment, employers and prospective employees are entitled to benefit from the new scheme. Prospective employees should be younger than 25 years or older than 45 years and have been unemployed for more than one year. Thus, both younger and older people who are long-term unemployed are the primary target group of this scheme. Wages of the employee concerned are subsidised by up to 50% of their gross income, providing that the threshold of €1,000 (gross wages and subsidies together) per month is not exceeded. The level of subsidy therefore decreases according as earnings increase. At the same time, the employer receives subsidies of about 15% of the respective employee’s gross wages. In certain cases, the employer’s subsidies can be increased to about 66% of the employee’s gross wages. The scheme is administered by the AMS and each case is terminated after one year.

Expectations about scheme not fulfilled

When introducing the new scheme, the Minister of Economy and Labour Affairs, Martin Bartenstein, estimated that some 3,000 employees would benefit from the new wage scheme in 2006, at a cost of about €14.1 million. However, these expectations have not been met thus far. Up to the beginning of April 2006, three months after the subsidised wage scheme has been introduced, only about 80 applications for subsidised wages were filed, of which 33 were deemed eligible by the AMS. Despite these results, Minister Bartenstein refused to adopt the common view that the initiative had largely been a failure and insisted that the scheme was merely experiencing some initial difficulties. Both the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) and the Chamber of Labour (Arbeiterkammer, AK) responded with derision. Trade unions have always argued that subsidised wages only reduce companies’ labour costs but do not lead to the creation of new jobs. This is because companies using the scheme tend to replace conventionally paid jobs with subsidised low-wage jobs rather than creating new posts. Nonetheless, the apparent failure of this measure so far seems to make the criticism of the ÖGB and the AK superfluous.

Reasons for low uptake

Experts disagree about the reasons why so few employers have made use of the scheme to date. Ewald Walterskirchen of the Austrian Institute of Economic Research (Österreichisches Institut für Wirtschaftsforschung, WIFO) points to alternative, more attractive subsidy measures, such as the so-called ‘reintegration subsidy’ (Eingliederungsbeihilfe), which is paid to companies that hire long-term unemployed people. The reintegration subsidy grants higher payments to companies compared with the subsidised wage scheme, and may thus make the latter seem less attractive to employers. However, Helmut Hofer of the Institute of Advanced Studies (Institut für Höhere Studien, IHS) identifies a lack of promotion of the scheme as the main reason for its low level of success to date.

Georg Adam, Institute of Industrial Sociology, University of Vienna

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